B7801 - Operations Management Agenda - 20 March 1998

1. B7801 - Operations ManagementAgenda - 20 March 1998 • Benetton’s marketing and manufacturing strategies • Types of processes • Production Line • Batch Processes • Job Shop • Product process matching & technology choice • Burger King & McDonald’s

2. Operations Strategy: A Summary There are many ways to compete, and firms cannot be all things to all people… there are tradeoffs in operating decisions about structure (bricks and mortar, machinery) and infrastructure (people, systems, procedures)… an operating strategy’s success is determined by the coherence of the pattern across decision categories, and by the match between operations strategy and the other functional and overall business strategies… over the long term an operations strategy is deemed successful if it guides the organization in building capabilities essential to attaining competitive advantage.

3. Benetton’s Markets, Marketing & Manufacturing Strategies Jennifer Prosek Luis Felli

4. Benetton’s Marketing and Manufacturing Strategies

5. What are production lines and why are they so efficient? Many “flavors” of production line fabrication line assembly line packaging line etc. Q: Why are they so efficient? A: Economies of specialization 1) job design and balance 2) layout 3) tools 4) time & motion

6. 1) Job design and balanceObjective: Eliminate idle time Brand X Brand X • Several tasks required to complete a job. • Example: hand packed fruit. • Tasks: • put paper divider in box • fill each section with appropriate fruit • oranges • grapefruit • place top on box • place label on box

7. Job 1 place paper divider in box. fill appropriate sections with fruit. Job 2 assemble top on box fix label to box Divide tasks to create two jobs Objectives: - specialize tools/work to make each job efficient - achieve desired output rate (cycle time) - cycle time J1 = cycle time J2

8. 2) Specialized layout (“production line”) Functional Layout cut grind Product-Oriented Layout wasted movement and effort weld minimal movement - operations are arranged in the sequence required for production.

9. 3) Specialized “tools” and facilities • There are different ways to specialize tools... • fix form/shape/configuration (e.g. mold, stamping die, loan application form) • pre-position it (hanging air gun, fixed equipment set-up) • dedicated assignment • How can specialized tools help improve efficiency? • eliminates processing steps • reduce movement of material/people • regularize process (quality, efficiency)

10. An example: Quick Lube Oil and Filter Change Oil Reservoir Filters Waste Oil

11. Use of the human body Two hands should begin and complete motion at the same instant. Both hands should not be idle simultaneously. Motion of both hands should be opposite and symmetrical. Use lowest classification of motion possible 1)finger, 2)hand, 3) wrist, 4) arm Continuous, curved motion. Avoid sudden changes in direction. Arrangement of work Fixed stations for all tools. Preposition tools, materials and controls near workplace. Use gravity feed bins for material and finished work. Provide good illumination. Height of worker should be adjusted for easiest motion. Design of tools Combine tools whenever possible. Handle should be large and contact entire hand. Locate tools to provide greatest mechanical advantage. 4) Time and motion efficiency

12. 1. Reach for cover 2. Select cover 3. Grasp cover 4. Move cover to assembly position. 5. Assemble cover to box 6. Reach for label 7. Grasp label. 8. Move label to assembly position 9. Assemble label to box 10. Idle 11. Idle. 1. Reach for box 2. Select box 3. Grasp box 4. Move box to assembly position. 5. Hold box. 6. “ 7. “ 8. “ 9. “ 10. Move assembly to tote 11. Release assembly Example: time standards/operator charts JOB 2: Putting cover and label on unit. Summary: Total Steps: 11 Std. Time: 0:38 work area layout covers boxes tote labels Left Hand Right Hand

13. The old fashioned toaster Activity Time (min) Toasting ( 1 side) 0.50 Turning time 0.02 Toasting (other side) 0.50 Removing time 0.05 Insertion time 0.05

14. Who should determine the best work methods? Staff specialists (Taylorism) “Now one of the very first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his mental make-up the ox than any other type...Therefore the workman who is best suited to handling pig iron is unable to understand the real science of doing this class of work. He is so stupid that the word `percentage’ has no meaning to him, and he must consequently be trained by a man more intelligent than himself into the habit of working in accordance with the laws of this science before he can become successful .” Frederick Winslow Taylor The Prin. of Sci. Mgmt., 1911 Workers themselves (Kaizen) “...You firmly believe that good management means executives on one side, and workers on the other; on one side, men who think, and on the other side, men who can only work. For you, management is the art of smoothly transferring the executives’ ideas to the workers’ hands. For us, management is the entire workforce’s intellectual commitment to the service of the company without self-imposed functional or class barriers... Only the intellect of all employees can permit a company to live with the ups and downs and meet the requirements of its new environment.” Kononsuke Matsushita 1988 Speech to U.S. executives

15. Such continuous improvement of the process is the reason for the learning curve effect $ unit production cost 0 cumulative production output 0

16. Specialization affects cost structure revenue Shift from variable to fixed costs fixed costs - specialized staff - engineering/maintenance variable costs - direct labor - materials - scrap $ revenue/cost F1 Breakeven volume Increase in assets plant equipment/tools F2 BE2 BE1 volume Specialization tends to increase breakeven and operating leverage. NOTE: Average unit cost varies tremendously with volume! 1) specialized 2) not specialized

17. Specialization results in tremendous efficiency “Whenever one can line up machinery for the making of exactly one thing and study everything to the end of making only that thing, then the savings which come about are startling.” Henry Ford Today and Tomorrow (1926) Some examples ... • Ford’s assembly lines reduced the labor required to assemble an automobile chassis from 12.5 hrs. to 93 min. • The most efficient car plants today (Japanese) have reduced the total labor content (direct, indirect and management) to under 20 hours per vehicle produced.

18. A BIG “problem”: product variety • Variety reduces effectiveness of specialization • harder to effectively specialize tools • work methods more varied/complex • flow/sequence of tasks may fluctuate • balance along line may get disrupted (bottlenecks) • Tremendous investment required to retool and redesign process • RESULT: Production lines lackvolume & mix flexibility “We believe that no factory is large enough to make two kinds of products. Our organization is not large enough to make two kinds of motor cars under the same roof.” Henry Ford Today and Tomorrow (1926) But variety provides value !!! What are we to do?

19. An aside: What is flexibility? Definition: A process is flexible if its operating performance (quality, service standards, etc.) and unit cost are insensitive to “changes” in output. • Volume Flexibility Process has same operating performance and unit cost regardless of the volume of the output (production rate). • Product Mix Flexibility Process has same operating performance and unit cost regardless of the relative mix of outputs.

20. Solution 1: Batch production • Produce products/service of similar type at the same time. • Reconfigure facility periodically to achieve variety in output. • Allows some flexibility in volume and mix of outputs • Fundamental trade-off • Switch-over/set-ups are expensive and time consuming • BUT … long production runs cause large cycle stocks • Less efficient than truly dedicated process Moderate efficiency with some volume & mix flexibility Temporarily specialized production process. inventory model #3X-45 producing idle producing idle time

21. Solution 2: Job shop production One-of-kind products (low volume/high variety) Set-up costs of batch production become prohibitive. Solution: • Use only general purpose equipment • increase flexibility • increase utilization • eliminate set-up/change-over costs • Combine jobs to eliminate idleness • Reduce standardization of jobs to add flexibility (cross training) • Rely on workers rather than work method and tools (e.g. craftsmanship) for productivity/quality. • Workers reallocated or added/subtracted to adjust the volume and mix of output. (“SCALEABLE”) Least efficient, but high volume & mix flexibility

22. Process choice is a strategic decision • What do our customer’s value? • low prices • quality (What “type” of quality?) • variety, convenience and service • How do we intend to differentiate ourselves in the market? • What are the dominate characteristics of our market and product? • niche/mass • mature market/new market • stable/seasonal • mature prod. technology/rapidly evolving prod. technology Given the answers to these questions, what process is best for each product or market?

23. The product-process matrix H variety L volume Job Shop The Terrace, Commercial printer Batch Process Product Variety/ Volume Tom’s Restaurant Heavy Equipment Production Line Burger King Automobile assembly Continuous Flow L variety H volume Paper mill L effec / H flex H effec / L flex Process Efficiency/Flexibility

24. Stages can be different (e.g. Benetton) Standardized material & fabrication Standardized logistics & store operations Assembly & Garment Dying Procurement Knitting Distribution prod. line batch/job-shop prod. line Color variety added here!

25. The product-process life cycle(Hayes and Wheelwright) job-shop • Early in a products life cycle .... • volumes are low • product design changes rapidly • process technology evolves rapidly • speed to market critical (first mover adv.) • During maturity • volumes stabilize • product design/features stabilize • process technology stabilizes • first-mover advantage subsides • In decline ... • volumes decrease • no new model variations • service parts/repairs dominate batch prod. line batch

26. Matching process to local economics • Factors of production differ • labor (skills and cost) • equipment • materials (availability and cost) • energy cost • transportation (infrastructure and cost)

27. Product/process mismatches • Conscious strategic choice • Incremental drift of markets/process • Applying same operations strategy to two different markets • Progression through life cycle without corresponding process change • Rapid advances in technology • Rapid product maturity

28. Linking Strategies to Missions Mission Investment Marketing Sales Requirements Strategy Strategy Low Unit CostAutomation Narrow line andPrice conservative design competition High service Inventory Image of dependability Rapid level delivery The Classic Facility Missions Mission Facilities Infrastructure Labor Low Unit CostSpecializedMaterialsRepetitive machines linkedplanning & controlwork by the time cycle High service Reserve machine Inventory management Overtime and level capacity idle time

29. Burger King & McDonald’s Kate Gleason Elena Katz Dan Brown

30. McDonald’s & Burger King 1. Draw a process flow diagram of hamburger production in each restaurant. 2. What are the objectives of each operation? What standards (implicit or explicit) are used? 3. What major design choices has each firm made in terms of both their product and process? How do these choices reflect the differences in competitive strategy? In what ways do these design choices impact each restaurant's operating performance 4. What problems, limitations or competitive threats does each restaurant face as a result of their process choice?

31. Two basic types of automation • Fixed automation • special purpose (custom engineered for one operation) • fixed tooling • fixed orientation • fixed sequence/motion • Another form of specialized tools • Flexible automation • general purpose (capable of performing multiple operations) • multiple tools (tool magazine) • flexible orientation(multiple axis - XYZ) • programmable • Offers new possibilities • - tremendous product variety • - flexibility (enter/exit markets, absorb variability in demand) • - economies of scope (investment/capacity shared across several products)

32. Examples of fixed automation • bread line • paper mill • steel mill • printing press • engine block transfer line production line/continuous flow processes

33. Fabrication and assembly robots paint spraying spot welding assembly flexible machining center programmable punch press Examples of flexible automation

34. 1 01658 348 3987 purchase order invoice firm supplier ANSI X12 funds transfer request deposit confirmation bank Flexible automation in services • Internet • Voice response unit (VRU) - Teleservicing • Optical bar codes • Transactions and communications • electronic data interchange (EDI) • electronic funds transfer (EFT)

35. Justifying investments in flexible automation is a bit tricky • Investment scope is larger • several product lines • multiple product life cycles • Requires specialized skills • software development • systems integration • Intangible benefits are hard to quantify • reduced lead time, increased variety • shorter product life cycles, strategic capability • New risks are introduced • obsolescence • system complexity

36. Some mass customization success stories • Motorola Pagers (Boynton Beach, Florida) • `Bravo’ model pager • varieties: color/frequency/vibration • mixed production/prototyping on same line • ABB Stotz-Kontakt GmbH (Heidelberg) • electric overload switches • 80-85% stock, 15-20% custom • One day delivery on custom switches • Levi Strauss Personal Pair Jeans • make-to-order custom sizes • computer order entry • 3-4 week lead time • National Bicycles Ind. Co. (Osaka, Division of Panasonic) • market share in Japan: 9% (2nd largest) • customized, made-to-order bicycles • varieties: frame size/color/equipment • 3-4% of total annual volume of 700,000 (70,000 customized bikes ‘87-93)

37. Levi’s Personal Pair Jeans Traditional Sizing 8 sizes (size 1-15, odd only) x = 24 total sizes 3 lengths Personal Pair Sizing 12 waist sizes 8 hip sizes x = 4,224 total sizes x x 4 rises 11 lengths And each size is available in 5 colors! Price: $65 vs. $49 for standard Levi’s Lead time: 3-4 weeks

38. National Bicycle 18 models (road, off-road, track) 6 handlebar stems 3 handlebar widths x x x 15 frame sizes 199 color patterns 2 pedal styles 3 toe clip styles 2 tire widths x x x x 2 name positions = 11,231,860 total variations x x 6 calligraphies Price: 150,000 Yen ($1300) - about twice price of mass produced bike Lead time: 10 days manf., approx. 2-3 weeks total.

39. But flexible automation can be misapplied A Comparison of US and Japanese FMS US Japan #mach/system 7 6 #types of parts 10 93 ann. vol./part 1,727 258 daily tot. vol. 88 120 #new parts/yr. 1 22 #sys unattended 0% 78% utilization 52% 84% Based on study of 95 flexible manufacturing systems in the U.S. and Japan - more than half the installed FMSs at the time. (Jaikumar, HBR ‘86) General Motors (Hamtramck plant, Detroit, 80’s) - “Technology leadership is what will keep us ahead.” Roger Smith, ‘81 - $80 billion investment in technology (EDS, Hughes) - Failed to improve productivity or quality.

40. Looking ahead • Concept: The 3D Printer • Stereolithography (SLA) • 3D Systems, Valencia, CA (1986) • Process • 3D object represented in data base • Laser scans cross-sections of object in liquid polymer • Laser fuses polymer to form plastic object • Selective Laser Sintering (SLS). • Sandia National Laboratory (Rapid Prototyping Lab, 1993) • Process • Uses powdered wax fused by laser to produce wax model • Wax model coated in ceramic • Wax is melted to form ceramic mold for liquid metal • Metal casting made from mold • Takes 5 days versus several months to produce prototype part

41. Other strategies for mass customization • Postponement (a la Benetton) • delay differentiation as much as possible • modularize design then assemble to order • Design user configurable products/services • switchable power supply • IKEA modular furniture • customizable internet interface Companies and industries are constantly redefining the technological frontier of the variety/cost trade-off.

42. Summary • There’s more than one way to make a product or provide a service! • A firm’s technology choice (prod. line, batch, job shop) has profound business impact • value created (variety, quality, lead time, cost) • cost structure • flexibility • Maintaining the right strategic match between a firm’s products/markets and processes is a dynamic process. • Technology is constantly changing the efficient frontier.